Organisation

Here you can find a list of definitions for terms associated with organisation. These terms are listed alphabetically, alternatively you can use the find facility within your internet browser (by pressing control + F simultaneously) to search for terms within this page.

Back Office

The part of the treasury organisation that administers and supports the trading activities of the treasury front office. The back office's main functions are to process, confirm, verify, settle, reconcile and record financial market transactions. The back office is also responsible for ensuring that the organisation's treasury management policy and controls are followed as well as ensuring general compliance with rules and regulations. In a more general sense, the term refers to all administrative functions that support an organisation and includes areas such as payroll and expenses, accounts payable, accounts receivable and accounting.

Bank Relationship Management

Represents one of the most important activities of the treasury function as banks are an important corporate resource and are significant financial stakeholders in an organisation/company. Bank relationship management has two main functions:

1. To select and appoint banks according to the company's funding, cash management and risk management requirements.
2. To maintain a consistent dialogue with bank counterparties and to inform them of corporate developments so as to ensure that business is being effected in a manner that is satisfactory to both parties, and that these banks are receptive to the company's needs at all times.

Belgian Co-ordination Centre (BCC)

A tax-preferential arrangement offered by the Belgian authorities that facilitates cost-effective treasury management for multinational companies. Other countries such as Luxembourg (Co-ordination Centres), the Netherlands (Dutch Finance Company Regime), Ireland (Dublin's International Financial Services Centre - IFSC) and France (Centrales de trésorerie) have similar arrangements, but none has attracted a similar level of take-up with the exception of the IFSC.

Benchmarking

In general terms, the practice of continuously comparing the performance of a business or financial operation, typically against the best practice standard in a given field or industry, through the use of a generally agreed measurement mechanism, so as to improve performance. In a treasury context, it means comparing actual performance on measure (such as return on surplus cash invested, cost of funds, foreign exchange rates achieved or commodity price secured) against some predetermined target, a budget or an external comparator.

Captive

A term specific to the insurance industry, meaning an insurance company or subsidiary whose primary objective is to insure the business activities of its parent company. This model is used to achieve a lower cost of cover than the normal external insurance method.

Centralised Treasury

A treasury management model where treasury activity, services provision, transaction execution and risk management are controlled and handled centrally. This may be done in a single central location or on a regionally centralised basis. A centralised treasury function is usually found within those groups that themselves operate in a centralised manner. See decentralised treasury, in-house bank.

Centre of Excellence

One reason for a centralised treasury function is that by merging certain treasury activities in one centre (e.g. foreign exchange management), they can be managed by individuals with greater competence and skill than if activities are fragmented over a number of subsidiaries.

Chief Financial Officer (CFO)/Finance Director

The senior manager in charge of the financial activities of an organisation. His/Her responsibilities comprise all finance-related decisions within the organisation; including investment, financing and dividend policy. Often the company officer or director to whom the treasurer reports.

Commissionaire Structure

An arrangement whereby agents sell goods or services on behalf of an undisclosed principal entity, which is generally established in a tax-advantageous location. The agents are remunerated on the basis of commissions. In addition to being tax-effective, this type of arrangement can also be advantageous from a point of view of liquidity, foreign exchange and risk management.

Co-ordination Centre

A specialised structure designed to enable multinational corporations to offer centralised treasury services to their group members as well as conduct a wide variety of intra-group financial operations on a virtually tax-free basis e.g. Belgian Co-ordination Centre (BCC).

Corporate Finance

The function in a company which manages policy and strategy for (and the implementation of) capital structure, budgeting, acquisition and investment, financial modelling and planning, funding, dividends and taxation.

Corporate Governance

The way companies are directed and controlled. It involves a set of relationships between a company's management, its board, its shareholders and other stakeholders. According to the Organisation of Economic Co-operation and Development (OECD), corporate governance should provide the structure through which the objectives of the company are set and the means of attaining those objectives and monitoring performance are determined. The relevance of corporate governance from a treasury perspective lies in the treasury's central role in managing the company's financial assets and liabilities and financial risks properly and in the best interest of its shareholders and other stakeholders. Governance in the treasury area is important because of the significance of the potential impact of its performance on overall results and also because of the sensitive nature of the activity.

Corporate Treasury

The function within a corporate organisation which is responsible for the management and delivery to the organisation's entities of banking and cash management, financing, foreign exchange and specific financial risk management services.

Cost Centre Treasury

A cost centre treasury typically eliminates risks as soon as they are identified. In practice, this usually applies to a limited number of risks such as transactions risk in foreign exchange or interest rates since most other risks (e.g. translations risk and funding risk) emerge over time. See profit centre teasury.

Decentralised Treasury

Usually found in groups that operate in a decentralised manner allowing operating subsidiaries considerable strategic and operating responsibility to achieve their management goals. Decentralised treasury allows subsidiaries responsibility to conduct their own treasury operations within certain parameters. The structure may operate in a number of different ways, but usually all funding activities are undertaken centrally, with subsidaries being responsible for cash and liquidity management and some hedging decisions. See centralised treasury.

European Treasury Centre (ETC)

Some European-based regional treasury operations are located in certain countries where there are tax advantages. Examples are Dublin's IFSC or the Belgian Co-ordination Centre (BCC). However, some European treasury centres are located in centres such as London where European cash management can be more efficiently conducted.

Finance Vehicle

A subsidiary company established for the purpose of financing the parent company or other members of the group and/or transacting group treasury operations.

Financial Shared Service Centre (FSSC)

A centralised services centre set up by groups to provide for the financial activities and needs of the group entities. This would include some or all of payroll and expenses, financial administration, accounts payable, accounts receivable, accounting, financial reporting, tax and treasury. All of the financial competence would be transferred from the individual entities to the FSSC.

Front Office

The part of the treasury function that executes transactions for the cash investment, funding, foreign exchange and risk hedging requirements of the company. The front office is the unit of the treasury which interfaces with the group's entities or subsidiaries and provides treasury services to them, and which interacts most with the company's lenders and other financial counterparties.

Funding

In the context of financing, refers to the provision of funds to a company for its commercial, financial or investment activities. The finance department, including the treasury, is responsible for the overall funding policy of a company including identifying optimal finance sources, the desired debt-equity ratio and the best use of the company's profits and cash flow. The treasurer is also responsible for the actual raising of funds and management of funds provided by the financial stakeholders.

Group of Companies

A type of corporate organisation where one company controls one or several other companies or subsidiaries by holding at least a 50% stake in the respective companies. The controlling or parent company usually interacts with the group's shareholders and can decide whether to engage in its subsidiaries' operations or not. The company structure may have an impact on the organisation of its treasury function, which can be centralised in the headquarters or decentralised.

Group Treasurer

The company officer responsible for managing the treasury aspects of the parent company and its group of subsidiaries.

IFSC (International Financial Services Centre)

Based in Dublin, the IFSC is a centre in which corporate treasury and financial services benefit from preferential tax treatment. The IFSC is a major world centre for specialised corporate treasury operations and is the leading centre for outsourced corporate treasury solutions. The IFSC is the world's second largest funds administration and custody centre, within which more than half of the world's leading 50 banks operate.

In-house Bank

When the treasury operates like a bank within a corporate group - taking cash deposits; lending liquidity, short-term and long-term funds; buying and selling foreign exchange; and dealing in treasury derivatives to hedge risks with the group entities. Typically, the in-house bank will deal back-to-back against its internal deals with external banks and financial counterparties.

International Treasury Centre (ITC)

A treasury centre established to handle the international (i.e. non-domestic in terms of the parent) treasury activities of a group. International treasury centres may be located alongside the domestic treasury operations of a group or in another geographic area.

Management of Treasury

The process of management in a company under which treasury services are provided to group entities, treasury activities are undertaken and treasury risks are managed and hedged.

Middle Office

With the front and back offices, the middle (or mid) office completes the key best practice division of duties and responsibilities in the treasury operation. Its basic responsibilities include treasury reporting and MI, accounting for treasury and determining and monitoring the internal treasury control framework. Many companies may not have operations sizeable enough to require a middle office; in these cases, its role is performed by the back office or the accounting department.

Outsourcing

The contracting of all or part of the treasury operation to a specialist third-party service provider, rather than it being performed in-house. This is now a commonly used model and has particular application where treasury needs change due to some form of corporate restructuring or change.

Pricing Tools

Treasury departments need to have access to specialised systems that will be able to price various transactions being executed or contemplated, including foreign exchange and interest rate derivatives as well as certain fixed rate borrowings or investments. These systems may be stand-alone or part of a module of the treasury system.

Profit Centre Treasury

A profit centre treasury operates to produce a profit from its treasury activities. This usually means that it has authority to trade financial instruments in much the same way a bank would, and will need to show an appropriate return on capital allocated to its trading activities. See cost centre treasury.

Regional Treasury

Large multinational or international companies often have regional treasury centres that manage cash and liquidity for corporate subsidiaries within a particular geographical or time zone. For instance, a North American multinational may have a treasury centre located in Europe to manage cash and liquidity in Europe and one in Singapore to handle the Far East. Regional treasury may also undertake hedging activities.

Re-invoicing Centre

A group's operating companies, instead of invoicing their customers for goods supplied, invoice the group's re-invoicing centre which in turn invoices the end customer. Centralises responsibility for invoicing and collecting accounts receivable and, where sales are invoiced in foreign currencies, the resulting foreign exchange exposure management.

Request For Information (RFI)

A formal document issued by a company to the market place to find providers or check that service levels of existing providers are in line with best market practice. It is also used to confirm that use of a service provided is still justified or to solicit external solutions to a particular business or operational problem. In the treasury arena, it is used mainly by companies when considering revised banking and cash management solutions, new systems or outsourcing solutions. It is generally followed by the issue of a request for proposal (RFP).

Request For Proposal (RFP)

A formal document, containing a list of questions sent out to potential providers, to source the provision of treasury services. Its uniform layout and content creates a level playing field and facilitates the selection of a provider. For its main uses in treasury, see request for information (RFI).

Root & Branch Approach

A method whereby treasury responsibilities are distributed between the company's headquarters and its subsidiaries. Head office or the 'root' is in charge of the main treasury operations i.e. the company's fundraising, risk management, hedging and bank loans. Various subsidiaries or 'branches', on the other hand, transact financial services such as leasing, loan financing or local currency hedging, but inform central treasury about their cash and foreign exchange needs. It is the central treasury's responsibility to concentrate the group's cash flow and to carry out treasury operations. A number of organisations/companies have re-organised their treasury activities and adopted this 'root & branch approach' in order to become more cost-efficient with regard to personnel, commissions and interest payments.

Service Centre/Shared Service Centre

The consolidation of certain financial services, such as payments and collections, payroll, accounting, financial administration, for some or all of the companies in a group. See payments factory.

Statement of Cash Flows

A standardised financial statement prepared in accordance with applicable accounting standards detailing cash inflows and outflows, cash balances and the utilisation of cash in the business of an organisation over a given period. A statement of cash flows relates to an organisation's operating, investing and financing activities.

Treasurer/Treasury Manager/Group Treasurer

The person with responsibility for the treasury function and activities within an organisation (See treasury functions, treasury activities). Group treasurer is the title which often applies in a large group organisation. The treasurer/treasury manager/group treasurer usually reports to finance director/CFO.

Treasury Accounting

The process which ensures that treasury transactions are entered accurately and correctly in the company's accounting books.

Treasury Activities

Treasury activities comprise the following:

• Cash flow and cash position forecasting.
• Banking and cash management.
• Liquidity management: The treasury function has to ensure that the company has sufficient liquid funds available to ensure a smooth running of its operations and to meet short-term financial obligations as and when due. Moreover, treasury is also responsible for investing surplus funds.
• Funding management: The treasury function has to source and secure funds for the needs of the business.
• Debt portfolio management: The treasury function has to manage the debt portfolio which emerges from the accumulation of individual financing transactions so as to achieve an acceptable cost and risk profile for the portfolio over time.
• Risk management: The treasury function has to advise on and implement effective hedging of treasury type risks, especially, foreign exchange, interest rate and commodity price risks, as well as liquidity, credit and counterparty risks.
• Bank, financial counterparty and rating agency relationship management.

Treasury Best Practice

The conducting of treasury and risk management activity to the highest standards of professional operation and ethics in the interests of all stakeholders in the business and its counterparties. See Guide to Treasury Best Practice: A Methodology.

Treasury Centre

Usually where a regional treasury is located.

Treasury Committee

Treasury committees are formed at two levels:

1. A board appointed treasury committee which meets on a regular basis to review treasury's activities on behalf of the board. Members are competent finance and business board directors and usually include some non-executive directors.
2. A more operational level committee to bring together interested parties within a company in making ongoing strategic and operational decisions in the treasury area. Members include the CFO, (group) treasurer, other senior finance officers responsible for taxation and corporate finance, perhaps the commercial director, and divisional CFOs.

Treasury Consulting

The provision of advisory and support services by the treasury team to the group's entities to assist them with issues and problems that they face and to enhance their performance as far as treasury has an impact.

Treasury Dealing

Buying or selling foreign exchange, securities and derivatives to manage identified underlying company transactions or exposures. See treasury trading.

Treasury Environment

The particular internal business and external financial market conditions in which treasury management is conducted. It may be quite different from the general environment of a company. It needs to be recognised when developing treasury policies and decision-making and management processes, as normal internal company approaches and solutions may not be suited to the treasury environment.

Treasury Ethics

The company's expectations of how treasury activities are conducted, especially in relation to professional standards including dealing with third parties and conflicts of interests.

Treasury Functions

The front, middle and back office roles as defined above, as well as the overall treasury management and oversight function.

Treasury Governance

For adequate corporate governance, the board and senior management must be cognisant of and approve the company's exposure to financial risk and have a policy embracing its identification, measurement, management, monitoring and control.

Treasury in Subsidiary Companies

Treasury activities carried out in various group subsidiaries and or associated companies for regulatory, fiscal, organisational and logistical reasons. For instance many subsidiary companies may carry out their own cash and liquidity management, particularly where they are geographically distant from the parent company. See centralised treasury, decentralised treasury.

Treasury Infrastructure

The procedures, controls, management process, systems and business continuity arrangements that apply in the treasury function.

Treasury Locations

Preferred locations, based on tax, regulatory, skill pools, traditional or geographic proximity factors, in which treasury management tends to be conducted. Examples are Dublin's IFSC, the Netherlands, Luxembourg, Singapore and Switzerland.

Treasury Management

Treasury management generally refers to the set of policies, strategies and transactions that a company adopts and implements to raise finance at acceptable cost and risk, to manage its cash resources, and to reduce interest rate, foreign exchange and commodity price risks, as well as in the conduct of its relationships with its financial stakeholders (mainly banks).

Treasury Objectives

The specific goals and objectives set for treasury. These should dovetail fully with both the company's financial goals and objectives, which are based on its business goals and objectives, and with its treasury policies.

Treasury Offshoring

The practice of conducting some of the treasury operations offshore from the parent company's centralised treasury location, often for operational, proximity, tax or cost reasons.

Treasury Organisation

The structures, roles and responsibilities, management system, reporting relationships, resourcing and infrastructure with regard to the provision of treasury services in an organisation.

Treasury Outsourcing

The contracting out of parts of an organisation's treasury activities to third parties in order to reduce costs and to benefit from the expertise and high quality of treasury services offered by outsourcing providers.

Treasury Performance Management

The process of managing the treasury function through performance measurement and management with the aim of achieving continued improvement towards best practice. This process must be aligned with and focus treasury's efforts on the objectives set for each treasury activity.

Treasury Performance Measurement

Treasury departments need to measure their performance regularly. Treasury performance can and should be measured at two levels:

1. First, its success in achieving the key treasury and risk management objectives which have been set for it and the observance of approved policy. This should be a quantitative measurement.
2. Second, more detailed performance measurements are conducted on specific treasury activities.

These measurements will vary; a service centre treasury will need to measure its performance against certain service level criteria, others may measure the performance of their dealers against some benchmark (e.g. where the dealer is borrowing overnight to cover daily shortages, he/she may be measured against the daily overnight rate).

Treasury Policy

A document that sets out the principal treasury related financial risks faced by a company or group and how these risks will be managed. The document should set out the company's approach to treasury risk management, state clear objectives and specify particular policy provisions. It should identify what instruments can be used and what the treasury department's authority levels are. It should also establish the reports that will be produced and make provision for other aspects of managing treasury operations such as internal audits. A company's treasury policy is its primary control document over its treasury operations and a key element of treasury governance. The policy should be regularly approved by the company's senior management and board. See Guide to Treasury Best Practice: A Methodology.

Treasury Products

The various financial instruments and solutions in which the treasury deals, which are mainly offered by banks and other financial counterparties in order to manage the organisation's cash flow and cash investment, financing and debt management, foreign exchange and treasury type risks. Treasury products include instruments (such as deposits, certificates of deposit, commercial paper, medium-tern notes), financing of various types, bank and capital markets, letters of credit, guarantees, spot and forward foreign exchange contracts, forward rate agreements, options and options-based products, futures, swaps and swaptions. Treasury solutions include banking and cash management products offered by banks, electronic banking solutions, systems and outsourced solutions.

Treasury Reporting

Reporting is an essential aspect of the management and control of treasury operations. Most treasury operations produce a monthly report of their activities which is reviewed by the finance director or the treasury committee. There are also weekly and daily reports, which are more operational, to support the ongoing conduct of the treasury business. Treasury reports should cover such matters as outstanding exposures, hedges against these exposures, new hedges taken out, old hedges that have matured, any funding operations that have been undertaken and the potential impact and sensitivity of residual exposures. See Guide to Treasury Best Practice: A Methodology.

Treasury Resources

The competent management and staff, treasury systems and information technology, pricing and analytical tools, and market information services required for professional treasury services.

Treasury Services

Increasingly treasury operations are viewing themselves as service centres. Such treasury departments have to be specific about the services they are offering, who these services are being offered to, and what the performance indicators should be.

Treasury Strategy

Comprises a plan of actions which need to be taken, with regard to the main treasury activities and including risk management and hedging, in order to achieve the objectives set for treasury within an approved policy. In turn, the strategy is normally implemented through a systematic plan of internal and external treasury transactions.

Treasury Structure

The positioning of the treasury function within an organisation, i.e. essentially whether it is centralised or decentralised, or some combination of these.

Treasury Sub-committee of the Board

In some companies, a sub-committee of the main board will be authorised to approve certain treasury activities provided they fall within certain authority levels. Any decisions of the sub-committee are subsequently ratified by the main board at their next meeting. For example, the sub-committee may be authorised to approve all aspects of the issue of a Eurobond, with their decision being ratified subsequently by the main board.

Treasury Systems

Systems used in treasury, mainly comprising the treasury management system (TMS), market rate and information services, treasury accounting systems and electronic banking (EB) or transaction settlement systems. Treasury systems need to be able to handle transaction and standing data databases, transaction processing, reporting and risk management, as well as linking with the company's financial systems.

Treasury Tax Locations

Some companies locate their treasury operations or regional treasury operations in centres where there may be some tax advantage e.g. Brussels or Dublin Docks.

Treasury Tax Structures

The packaged location (jurisdiction), legal structure and treasury transaction structure (or any element of these), developed in order to achieve a tax advantage.

Treasury Trading

Dealing by authorised treasury officers seeking profit by buying and selling foreign exchange, securities and derivatives. See treasury dealing.

Treasury Transactions

Deals executed and activities undertaken by treasury within delegated authorised limits in the provision of treasury services and in risk management. Transactions are in financial market instruments and derivatives.

Treasury Vehicles

Special purpose companies or subsidiaries, also called special purpose vehicles (SPVs), set up by companies to facilitate financing transactions (mainly structured financing transactions). They are often set up in favourable tax and/or regulatory jurisdictions to achieve value or cost advantages. They are sometimes used to acquire or to provide specific treasury services.

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